Brazil to partly address fiscal concerns soon, central bank chief says

3:09 pm Thursday, October 24th, 2024

By Marcela Ayres

WASHINGTON (Reuters) – Brazil’s government will make announcements soon that will partly address financial markets’ fiscal concerns that are affecting the country’s risk premium, central bank chief Roberto Campos Neto said on Thursday.

Speaking at a G20 press conference on the sidelines of the International Monetary Fund and World Bank annual meetings in Washington, Campos Neto also said “Brazil is performing much better than the average” in terms of countries’ primary budget balances.

“In that sense, I have sometimes made comments suggesting that market prices are exaggerated,” he said.

The remarks about the government of leftist President Luiz Inacio Lula da Silva, a frequent critic of the central bank chief’s leadership, came after Campos Neto recently stated that a fiscal shock would be necessary to create room for borrowing costs to decrease in the future.

Campos Neto also said the Nov. 5 U.S. presidential election is pushing up market volatility, as policy proposals from Democratic candidate Kamala Harris as well as her Republican challenger Donald Trump are expected to boost inflation.

As the U.S. election nears, the market has been scrutinizing the two candidates’ positions more closely, and that has been affecting prices, Campos Neto said.

Brazil’s next monetary policy meeting is scheduled for Nov. 6, and bets embedded in the yield curve suggest policymakers will hike rates by 50 basis points, following a 25-basis-point increase in September that lifted the central bank’s policy rate to 10.75%.

Finance Minister Fernando Haddad said the government has decided to strengthen the parameters underpinning the country’s fiscal framework, though he did not provide details on what would be presented.

Markets have questioned the sustainability of new fiscal rules introduced by Lula last year, as mandatory expenses have been rising rapidly, narrowing the space for other outlays under a spending cap. This could render the fiscal framework nonviable within a few years.

Lula has resisted implementing spending cuts, but his economic team said measures to control expenditures will be unveiled after a municipal election later this month.

(Reporting by Marcela Ayres; Editing by Paul Simao)